Proposition 12

Background

Since 1921, the voters have approved a total of about
$8.4 billion of general obligation bond sales to finance the veterans’ farm and
home purchase (Cal-Vet) program. As of July 2008, there was about $102 million
remaining from these funds that will be used to support new loans.

The money from these bond sales is used by the State
Department of Veterans Affairs to purchase farms, homes, and mobile homes which
are then resold to California veterans. Each participating veteran makes monthly
payments to the department. These payments are in an amount sufficient to (1)
reimburse the department for its costs in purchasing the farm, home, or mobile
home; (2) cover all costs resulting from the sale of the bonds, including
interest; and (3) cover the costs of operating the program.

Proposal

This measure authorizes the state to sell $900 million in
general obligation bonds for the Cal-Vet program. These bonds would provide
sufficient funds for at least 3,600 additional veterans to receive loans. For
more information regarding general obligation bonds, please refer to the section
of this ballot pamphlet entitled “An Overview of State Bond Debt.”

Fiscal Effect

The bonds authorized by this measure would be paid off
over a period of about 30 years. If the $900 million in bonds were sold at an
interest rate of 5 percent, the cost would be about $1.8 billion to pay off both
the principal ($900 million) and the interest ($856 million). The average
payment for principal and interest would be about $59 million per year.

Throughout its history, the Cal-Vet program has been
totally supported by the participating veterans, at no direct cost to the
taxpayer. However, because general obligation bonds are backed by the state, if
the payments made by those veterans participating in the program do not fully
cover the amount owed on the bonds, the state’s taxpayers would pay the
difference.